Saturday, December 04, 2010

ISM Employment Indexes Above Fall 2007 Levels

"All is not doom and gloom on the economy. There is some optimism. In fact, there's a mystery to Friday's jobs report, since it just doesn't tally with all the other good economic news. Retail sales are up four straight months, and chain-store sales for the early holidays surprised on the upside. Manufacturing reports have been solid. Even for November, the Institute for Supply Management's surveys for manufacturing and services were solid. The ISMs are basically real-time economic indicators. And oddly enough, the employment component of each looks fairly strong."

The nearby chart shows the employment indexes from the ISM-Manufacturing and Non-Manufacturing reports for November that were released this week. The Employment Index for the service sector of the economy increased in November for the fourth month in a row, and for the 9th time in the last 12 months, and is now at a pre-recession level of 52.7, the highest since October 2010. The index for employment in the manufacturing sector has been above pre-recession levels for the last year now. The positive trends in these employment indexes suggest that the labor market might be stronger than the BLS report, and the "underlying trend in job growth should accelerate in the months ahead," as Brian Wesbury and Bob Stein reported yesterday.

According to the Institute for Supply Management's November statistics, manufacturing employment has been growing for twelve consecutive months and non-manufacturing employment has been growing for three consecutive months. The ISM's employment data are flawed: overall unemployment rates increased in November. Unemployment rates worsened throughout 2009. Since August, 2009, unemployment rates have stayed within narrow limits: 9.5-10.1% (official federal statistics) and 14-18% (true unemployment statistics).

@Benjamin: The Federal Reserve already has taken too many wrong actions. By reducing interest rates to nearly zero, those with savings have been hurt financially. By creating hundreds of billions of dollars out of thin air, the Fed has set us up for inflation that will strike when (if) the economy recovers. This will again hurt those with savings (while benefiting those with debt, particularly our federal government). Policies that repeatedly hurt persons and corporations who have savings always are bad for the economy in the long run.

Some quarters have been warning about inflation for years now. Instead, we have a sinking core CPI, and falling unit labor costs, and real estate prices in the toilet. We have the lowest recorded rates of inflation since 1962 (?) and some say the CPI overstates true inflation.

On the savers vs. borrowers argument: If rates comes down, if hurts savers and helps borrowers--and it is borrowers who create jobs, build businesses and develop real estate.

Can't see the moral virtue in this argument--if anything, it lies with business borrowers. They are the ones who build our economy.

Study Japan for what happens when a central bank develops a fetish for low inflation. Property and equity values there are down 75 percent in 20 years--and still squishy. They are in their 18th straight month of deflation now, another sustained bout of deflation.

Never, ever let the gold-nut money-fetish crowd get control of your central bank. If that happens, buy government bonds, shut down your business, and take a 20-year nap. Like Japan.

If rates comes down, if hurts savers and helps borrowers--and it is borrowers who create jobs, build businesses and develop real estate.

Under natural conditions, it is those savers who provide the capital to the borrowers. We have already seen what happens when savings rates drop nearly to zero and the Fed materializes the lending capital in their place.

Ron H.--What we have now is a gut of savings--globally. Gobs of money in corporate bank accounts, gobs of money in money market funds, every Treasury auction oversubscribed....money on the sidelines in hedge funds, private equity funds, sovereign funds etc.

There was a time when I was growing up we talked about "crowding out," the federal government pushing out others from debt markets.

Those days are over--the globe has capital gluts.

If savers do not buy Treasuries, or corporate bonds, where do they go? It would be great if they start spending or really investing their money,

Why should the owners and managers of this money take a chance on spending/investing these 'gobs of money' when there's no confidence in this questionable administration and its enablers in the leftist/progressive Congress that are making future conditions for business very dicey?

Let's see. The number is surprising because by all appearances, manufacturing and non-manufacturing jobs are increasing. At the same time, dems are trying to make a political issue (shocking, I know) out of expiring unemployment benefits.

Hmm. Could it be that they fudged the unemployment number in order to sway public opinion in the benefits debate against those mean, heartless republicans who don't want to help the unemployed?

The real question is, Why are there so few jobs being created? A severe recession like the one we experienced in 2008-2009 is supposed to be followed by a rapid, "V-shaped" recovery. That is what happened following nearly every previous recession. But it is not happening this time. So what's different?

The difference is that Democrats have spent the last two years engaged in an orgy of new spending, regulation, litigation, and taxation -- all of it squarely aimed at America's most successful businesses. Among the thousands of new regulations in the health care reform bill and the Dodd-Frank financial reform legislation is a potentially devastating requirement that retailers report whether their goods contain "conflict metals": gold, tungsten, and the like mined in war-torn Central Africa...

"The Fed needs to follow Milton Friedman's advice, and print money until we get solid economic grwoth and mild inflation."

Benji, You didn't answer Plamen's question. If money is abundant and cheap, why should the Feds print more? Your response to me also missed the mark by a long shot. You offered no suggestions on how to remove the plug, nor did you explain why you thought flushing again was a good idea.

Benji, rather that invoking Friednman, whose recommendation was intended to increase bank reserves under very different circumstances, you need to explain why already high bank reserves should be increased even more.

Benjie, you do contradict yourself by saying that capital is so readily available but more pump priming is necessary. In that article by Friedman, he says that Japan should increase its money supply but counsels against overdoing it as in the past. His argument is that one can have too low money growth and one can have too high and in Japan's case it was arguably too low in the low 90's and he says it should have been raised a bit.

As for our current situation, Bernanke knows exactly what he's doing when it comes to monetary reserves, he pumped a trillion dollars into banks' coffers and is ready and waiting to take it out when the economy recovers. Where he possibly erred is in buying so many mortgage-backed securities the first time around, $1 trillion worth, and another half trillion in govt bonds now, effectively spreading those losses on the taxpayer. Another big concern is if he will be independent enough to pull out those reserves to nip inflation in the bud as the economy starts growing, if he can weather the hail of criticism that's sure to come his way that he's pulling out too soon and "killing" the recovery. All in all, he knows what he's doing, but he's perhaps doing too much and taking too many risks: QE2 is very likely another mistake, forget about more.